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01 January 2018

Supervisory Board: Disclosure of conflicts of interest and confidential information

Prior to their election to the supervisory board of an Austrian stock corporation or, in case of a two-tier governance system, societas europaea candidates have to disclose to the shareholders their qualifications, profession and other functions as well as all circumstances that may create the appearance of a conflict of interest. 

Usually this is done by submitting a CV and a statement on (no) conflicts of interest with the company, which then discloses this information to the shareholders, or, in the case of a listed company, publishes the information on its website.  However, a potential conflict of interest does not prevent a person's election to the supervisory board, as being a supervisory board member of an Austrian joint stock corporation or societas europaea is a part time job. Therefore, it is generally accepted that supervisory board members may have interests that differ from those of the company. Besides certain incompatibility rules and statutory restrictions on the exercise of voting rights in shareholders' meetings, such conflicts are not generally prohibited, but have to be disclosed by the supervisory board member and dealt with on a case-by-case basis. Therefore, supervisory board members are under a constant obligation to disclose potential conflicts of interest to the supervisory board and, in case of a conflict of interest, to abstain from voting on the specific matter. In case of noncompliance with this obligation, the chairman of the supervisory board must not count that member's vote. In exceptional cases, conflicted supervisory board members may be excluded from supervisory board meetings by majority vote. 

Disclosure of confidential information to individual (controlling) shareholders 
Control of the supervisory board is the key to control over an Austrian stock corporation. Although legally independent, individual supervisory board members are therefore often elected and see themselves as representing the interests of significant / controlling shareholders. In practice, this means sharing and discussing confidential information (such as trade secrets and information relating to the company's business operations) with significant / controlling shareholders.This conflicts with statutory law requiring supervisory board members to keep confidential and not to disclose confidential company information to third parties. Non-compliance with confidentiality obligations may result in damage claims by the company against the respective supervisory board member, constitutes important cause for early recall by the competent court upon request of a 10% minority and, in exceptional cases, may even result in criminal penalties (eg under the Unfair Competition Act).
However, it is generally accepted that in a group of companies (Konzern), supervisory board members of the subsidiary company may disclose confidential information to the parent company.

Moreover, legal and commercial practice accepts that supervisory board members not elected by the shareholders' meeting, but delegated based on special delegation rights set forth in the company's articles of association or vested in the holder of a "golden" registered share may, as an exception to the general duty of confidentiality applicable to supervisory board members, disclose confidential information to the delegating shareholder. The same applies to supervisory board members elected based on a syndicate agreement between controlling shareholders. The delegating shareholder and the delegated supervisory board member may also enter into a formal mandate agreement pursuant to which the supervisory board member agrees to keep the shareholder informed on confidential matters concerning the company and, subject to restrictions, to discuss and agree on the voting in the supervisory board. Nevertheless, this exemption from the general duty of confidentiality is not absolute. In no case may the company be harmed by the disclosure (eg disclosure of information for competition purposes is not permitted). In case of a listed company, further rules may apply with regard to the disclosure of inside information or the obligation to disclose transactions with securities in the company (director's dealing). 

Although legally independent, individual supervisory board members are in practice often elected as representatives of the interests of significant / controlling shareholders.

Delegated supervisory board members and delegating shareholders may enter into mandate agreements regarding the disclosure of confidential information and the exercise of voting rights.

Further reading
Disclosure in the context of private m&a transactions
Privacy-related representations in m&a agreements
Non-financial reporting in Slovenia



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